{"id":597660,"date":"2023-08-13T00:00:00","date_gmt":"2023-08-13T00:00:00","guid":{"rendered":"https:\/\/enterpriseam.com\/egypt\/2023\/08\/13\/what-the-pundits-are-saying-about-our-economy-this-morning-from-expectations-of-devaluation-to-a-possible-moodys-downgrade\/"},"modified":"2023-08-13T00:00:00","modified_gmt":"2023-08-13T00:00:00","slug":"what-the-pundits-are-saying-about-our-economy-this-morning-from-expectations-of-devaluation-to-a-possible-moodys-downgrade","status":"publish","type":"post","link":"https:\/\/enterpriseam.com\/egypt\/2023\/08\/13\/what-the-pundits-are-saying-about-our-economy-this-morning-from-expectations-of-devaluation-to-a-possible-moodys-downgrade\/","title":{"rendered":"What the pundits are saying about our economy this morning, from expectations of devaluation to a possible Moody\u2019s downgrade"},"content":{"rendered":"

The pundits were in overdrive late last week and into the weekend <\/strong>, with everyone from Moody\u2019s (more threats of a downgrade) to Citi (no longer bullish on our debt) and Bloomberg (devaluation is inevitable) weighing in on where the Egyptian economy goes next. We read so you don\u2019t have to:<\/p>\n

UP FIRST- Moody\u2019s is extending its review of a potential downgrade for our sovereign <\/strong> credit <\/strong> rating <\/strong> as it weighs progress on the government's reform agenda against evidence of weakening FX liquidity and the likelihood of further currency devaluation, the rating agency said in a statement (pdf)<\/a> on Thursday. The review of Egypt's B3 long-term foreign-currency and local-currency issuer ratings will continue for another three months, the Finance Ministry said<\/a> following the announcement.<\/p>\n

Remember: <\/strong> Moody\u2019s in May started a review to downgrade<\/a> the country\u2019s debt score, warning of growing risks to the country\u2019s liquidity and debt affordability. The agency had cut our credit score to B3<\/a> back in February. Each of the big three rating agencies have revised their stance on Egyptian debt this year: Fitch Ratings in May cut its rating to B<\/a> while S&P Global Ratings in April downgraded its outlook<\/a> to negative.<\/p>\n

Here\u2019s what Moody\u2019s is keeping an eye on: <\/strong><\/p>\n

#1- Declining FX liquidity: <\/strong>A persistent decline in FX liquidity could offset the proceeds of recently announced asset sales, Moody\u2019s said, pointing to the widening deficit in net foreign assets. The deficit in net foreign assets widened to negative USD 27.1 bn<\/a> in June from negative USD 24.4 bn<\/a> in May, an amount that exceeds the US<\/a> D 1.65<\/a> bn<\/a> in FX expected from the sale of state assets. \u201cIf sustained, continued net outflows could potentially undermine the goal to sustainably replenish the economy\u2019s FX liquidity buffers ahead of increased debt service payments in FY 2023-24 and FY 2024-25,\u201d the rating agency wrote.<\/p>\n

Remember: <\/strong> The government expects to sign the final contracts to sell the USD 1.9 bn ofstate-owned assets in September, an unnamed government official recently told CNN Arabic<\/a>. Investors are currently conducting due diligence on the assets ahead of agreeing final terms.<\/p>\n

#2- The threat of further devaluation: <\/strong>\u201cThe persistence of foreign exchange shortages, as reflected in a parallel exchange rate . . . increases the likelihood of renewed official currency devaluation that could further drive inflation, borrowing costs and the general government debt ratio to levels more consistent with a lower rating level,\u201d Moody\u2019s said. The parallel rate currently stands at EGP 38.00 against the USD, compared to the official rate of EGP 30.90.<\/p>\n

#3- Progress with the IMF program: <\/strong> \u201cMoody's would consider lack of progress with the IMF review over the remaining review period as an indication of a potential weakening of external financial support, which otherwise provides a key support to Egypt's credit profile at the current rating level,\u201d according to the rating agency.<\/p>\n

Remember: <\/strong> The IMF in April postponed<\/a> its first review of the USD 3 bn loan program<\/a> due to a lack of progress on privatization and exchange-rate flexibility. Initially scheduled for March, the review is now widely expected to take place in September<\/a>.<\/p>\n

On the bright side: <\/strong>The report acknowledges \u201csignificant progress\u201d in selling state assets and business environment reforms, including the removal of preferential tax breaks for state firms<\/a>.<\/p>\n

What\u2019s next? <\/strong> \u201cThe extended review period will focus on the extent to which the proceeds of the recently concluded asset sales help restore foreign currency liquidity buffers evident in foreign exchange reserves, the monetary system's net foreign asset position, FDI inflows, as well as exchange rate dynamics,\u201d Moody\u2019s said.<\/p>\n

The story was picked up by the foreign press: <\/strong>Bloomberg<\/a>.<\/p>\n

CITIGROUP IS BEARISH ON OUR DEBT- <\/strong><\/p>\n

Strategists at Citigroup said they had reduced their overweight call on Egyptian debt <\/strong>because the privatization program is \u201cincreasingly falling behind targets,\u201d according to a note picked up by Bloomberg<\/a>. The downbeat sentiment reflects a shift from the US bank\u2019s position in June, when Luis Costa, global head of emerging-market sovereign credit at Citigroup, said<\/a> that the US bank has adopted \u201ca more positive view\u201d on the EGP and the country\u2019s USD bonds in the short-term.<\/p>\n

What they\u2019re saying: <\/strong>\u201cIdiosyncratic risks remain elevated in Egypt,\u201d the strategists wrote in the note. \u201cThe prospect of a delayed IMF agreement is increasing as the pace of privatization appears insufficient to meet its quantitative performance criteria.\u201d<\/p>\n

FINMIN\u2019S REAX- <\/strong><\/p>\n

Maait responds: <\/strong>Moody\u2019s decision to extend its review \u201creflects a balanced view of the steps and reform measures\u201d taken by the government during recent months as well as an \u201cunderstanding of the external and internal difficulties\u201d facing the Egyptian economy, the ministry statement quotes Finance Minister Mohamed Maait as saying in response to the Moody\u2019s report. <\/p>\n

Working on it: <\/strong>The government is \u201cworking on achieving more reforms and structural measures during the coming months\u201d to address the challenges outlined by Moody\u2019s as well as other economic headwinds, the minister said.<\/p>\n

DEVAL WATCH- <\/strong><\/p>\n

Another <\/strong> deval is inevitable, says Daoud: <\/strong>The country\u2019s low portfolio inflows, negative net foreign assets, and interest rates all mean that \u201canother devaluation is a matter of when and how much rather than if,\u201d Bloomberg chief EM economist Ziad Daoud said in an interview with Bloomberg TV (watch, runtime: 4:29<\/a>).<\/p>\n

#1- Inflows: <\/strong>\u201c[Egypt] has a current account deficit of USD 10 bn. It's not getting much in terms of portfolio inflows . . . or foreign direct investment, which means you have lots of demand for external currency and that requires a weaker currency,\u201d said Daoud.<\/p>\n

#2- Foreign liabilities: <\/strong> \u201cIf you look at the net foreign assets of the central bank and the banking system as a whole, it's never been so negative,\u201d said Daoud. \u201cSo all these entities are running liabilities that are much bigger than their assets, and their capacity to defend the pound going forward and keep it stable is no longer there.\u201d<\/p>\n

#3- Interest rates: <\/strong> \u201cAnd if you look at the interest rates . . . Egypt offers a very low interest rate relative to where inflation is . . . it\u2019s deeply negative . . . much lower than its emerging market peers,\u201d said Daoud. \u201cAnd that, again, that's not attracting capital into Egypt.\"<\/p>\n","protected":false},"excerpt":{"rendered":"

Moody\u2019s is watching the reform program closely, while Citigroup is turning bearish on our USD bonds<\/p>\n","protected":false},"author":1,"featured_media":597661,"comment_status":"closed","ping_status":"open","sticky":false,"template":"single-feature.php","format":"standard","meta":{"_acf_changed":false,"newspack_ads_suppress_ads":false,"newspack_popups_has_disabled_popups":false,"newspack_sponsor_sponsorship_scope":"","newspack_sponsor_native_byline_display":"inherit","newspack_sponsor_native_category_display":"inherit","newspack_sponsor_underwriter_style":"inherit","newspack_sponsor_underwriter_placement":"inherit","ep_exclude_from_search":false,"_primary_brand":0,"newspack_featured_image_position":"","newspack_post_subtitle":"","newspack_article_summary_title":"Overview:","newspack_article_summary":"","newspack_hide_updated_date":false,"newspack_show_updated_date":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[7206],"tags":[294,104,72,2234,1324],"brand":[],"newspack_spnsrs_tax":[],"class_list":["post-597660","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-economy","tag-citigroup","tag-economy","tag-enterpriseam","tag-foreign-exchange","tag-moodys","wpautop","entry"],"acf":{"mongo_id":"281327fe-e0f6-4ae2-b4e3-7cc9106b5b6d","order":"0","is_powered_by":false,"story_type":"1","photo_url":"https:\/\/ent.news\/2023\/8\/545.jpg","photo_position":"above","homepage_title":"Moody\u2019s 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on the fate of the EGP: Egyptian policymakers will likely choose to maintain a close watch on the EGP and allow it to ease gradually against the greenback to avoid exacerbating inflationary pressures, Moody\u2019s says in a report picked up by the regional press.The\u2026","rel":"","context":"In "Economy"","block_context":{"text":"Economy","link":"https:\/\/enterpriseam.com\/egypt\/category\/economy\/"},"img":{"alt_text":"","src":"https:\/\/i0.wp.com\/ent.news\/2022\/8\/344.jpg?fit=%2C&ssl=1&resize=350%2C200","width":350,"height":200},"classes":[]},{"id":586887,"url":"https:\/\/enterpriseam.com\/egypt\/2023\/05\/18\/fitch-downgrades-credit-ratings-of-four-local-banks\/","url_meta":{"origin":597660,"position":1},"title":"Fitch downgrades credit ratings of four local banks","author":"enterpriseam admin","date":"18 May 2023","format":false,"excerpt":"The banks now have a rating of B, down from B+","rel":"","context":"In "Economy"","block_context":{"text":"Economy","link":"https:\/\/enterpriseam.com\/egypt\/category\/economy\/"},"img":{"alt_text":"","src":"https:\/\/i0.wp.com\/ent.news\/2023\/5\/1032.jpg?fit=%2C&ssl=1&resize=350%2C200","width":350,"height":200},"classes":[]},{"id":616680,"url":"https:\/\/enterpriseam.com\/egypt\/2024\/03\/10\/moodys-upgrades-egypts-outlook-to-positive\/","url_meta":{"origin":597660,"position":2},"title":"Moody\u2019s upgrades Egypt\u2019s outlook to positive","author":"enterpriseam admin","date":"10 March 2024","format":false,"excerpt":"Moody\u2019s expects the FX liquidity from the Ras El Hekma agreement to close the external funding gap until FY 2025-2026","rel":"","context":"In "Economy"","block_context":{"text":"Economy","link":"https:\/\/enterpriseam.com\/egypt\/category\/economy\/"},"img":{"alt_text":"","src":"https:\/\/i0.wp.com\/ent.news\/2024\/3\/734.jpg?fit=%2C&ssl=1&resize=350%2C200","width":350,"height":200},"classes":[]},{"id":581328,"url":"https:\/\/enterpriseam.com\/egypt\/2023\/02\/08\/moodys-downgrades-egypts-credit-rating-for-first-time-since-2013\/","url_meta":{"origin":597660,"position":3},"title":"Moody\u2019s downgrades Egypt\u2019s credit rating for first time since 2013","author":"enterpriseam admin","date":"8 February 2023","format":false,"excerpt":"Due to reduced external buffers and shock absorption capacity","rel":"","context":"In "Economy"","block_context":{"text":"Economy","link":"https:\/\/enterpriseam.com\/egypt\/category\/economy\/"},"img":{"alt_text":"","src":"https:\/\/i0.wp.com\/ent.news\/2023\/1\/EGP-1600.jpg?fit=%2C&ssl=1&resize=350%2C200","width":350,"height":200},"classes":[]},{"id":607972,"url":"https:\/\/enterpriseam.com\/egypt\/2023\/10\/12\/it-was-expected-moodys-downgrades-credit-rating-of-five-local-banks\/","url_meta":{"origin":597660,"position":4},"title":"It was expected: Moody\u2019s downgrades credit rating of five local banks","author":"enterpriseam admin","date":"12 October 2023","format":false,"excerpt":"The move follows the agency\u2019s decision to downgrade Egypt\u2019s sovereign credit rating to Caa1 last week","rel":"","context":"In "Banking"","block_context":{"text":"Banking","link":"https:\/\/enterpriseam.com\/egypt\/category\/industries\/banking\/"},"img":{"alt_text":"","src":"https:\/\/i0.wp.com\/ent.news\/2023\/10\/619.jpg?fit=%2C&ssl=1&resize=350%2C200","width":350,"height":200},"classes":[]},{"id":582100,"url":"https:\/\/enterpriseam.com\/egypt\/2023\/02\/13\/moodys-downgrades-five-banks-deposit-ratings-on-sovereign-credit-risk\/","url_meta":{"origin":597660,"position":5},"title":"Moody\u2019s downgrades five banks\u2019 deposit ratings on sovereign credit risk","author":"enterpriseam admin","date":"13 February 2023","format":false,"excerpt":"Moody\u2019s has downgraded the long-term deposit ratings of five Egyptian banks on the back of its downgrade last week of the country\u2019s sovereign credit rating. 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